Colgate: The smile widens

The dominant market leader has been adding new users every year, but there are stiff challenges ahead

That Colgate is the undisputed market leader in the toothpaste market commanding a market share of 54.5 per cent is well known. What may not be so well known is that Colgate has managed to gain about 50-100 basis points market share every year over the past few years, despite aggressive launches by formidable competitors such as Hindustan Unilever (HUL) and GSK Consumer.

A large part of this gain has come by adding new users — those of toothpowder, datun as well as non-toothbrush users. The fact that the toothbrush category grew by 16 per cent year-on-year in the September 2012 quarter, despite a steep contraction in the toothpowder segment is a strong indication of consumers up-trading towards toothpaste. And experts say Colgate’s strong brand equity and market leadership position makes it well-poised to benefit from this up-trading.

Harish Bijoor, CEO, Harish Bijoor Consults Inc, says, “Colgate has kept its brand and product integrity intact and maintained the integrity of its plain white

old toothpaste. They have gained from new growth in the market itself. There is still a 450 million people — strong market of non-toothpaste-users where Colgate can gain significantly”.

Constant new product launches under different sub-categories in oral care is another key reason for Colgate’s expanding footprint. The company has launched a wide range of product extensions such as kids’ toothpaste, whitening product, active salt, mouthwash and a whole host of toothbrush products, enabling it to expand its reach. In the September quarter as well, Colgate launched three new products — Colgate Total Advance Whitening, Colgate MaxFresh Ice and Colgate MaxFresh toothbrush. This comprehensive product range is strongly supported by the company’s 4.5 million retail outlets in India, experts say.

However, analysts say the road ahead could bring in stiff challenges. Two of its key competitors, HUL (Close Up, Pepsodent) and Dabur (Meswak, Dabur Red toothpaste), also managed to post decent growth in their oral care portfolio in the September 2012 quarter. Further, FMCG giant Procter and Gamble (P&G) is also geared up to enter the toothpaste segment in India (it already has its toothbrush products in India). All these factors would mean Colgate will have to invest heavily in brand building, advertising and promotional activities which could put operating margins under check. Analysts though remain bullish on Colgate’s ability to fight back.

“P&G’s entry may not materially impact Colgate’s market standing, given the expected positioning of P&G’s Oral Care brands (Oral B, Crest) and the distribution gap between P&G and Colgate. At worst, it may necessitate a few quarters of higher ad-spends for Colgate. At best, it will aid category development”, says Gautam Duggad, FMCG analyst at Motilal Oswal Securities.

Colgate is also focusing on premiumisation, which will provide support to its margins going forward. Further, new categories such as sensitive toothpaste and mouthwash will drive future growth for the company. Notably, Colgate’s market share in both toothbrush and mouthwash segments too has expanded and now stands at a decent 39 per cent and 27 per cent respectively.

“While we believe the extent of incremental market share gain will be lower going forward, consistent product launches and aggressive marketing initiatives will keep competition at bay in the toothpaste category”, analysts at Enam Securities Direct in a recent note on Colgate say.